4 Reasons to Buy Shopify Now and Hold It Forever


Calling all bargain shoppers: There’s an e-commerce champion trading for a fraction of its former price.

The tech stock sell-off has been extra tough on Shopify (SHOP -11.34%) as its bottom line recently took a nosedive. On closer inspection, though, the company’s latest earnings report didn’t look like something from a business in trouble. In fact, the business appears to be on the edge of another big growth spurt.

Soaring prices for gasoline, groceries, and other items people generally don’t shop for online are limiting how much consumers have to spend everywhere else. For this reason alone, the rest of 2022 probably won’t resemble the banner year that was 2021. For one thing, the company intends to invest heavily in its fulfillment network, which could be a short-term drag on earnings.

Before you let short-term troubles turn you away from Shopify, however, have a look at four signs that this e-commerce giant can produce market-beating gains for patient investors.

1. The clear leader 

A recent report from G2 Grid ranked Shopify and Shopify Plus as the No. 1 and No. 3 most popular e-commerce platforms out there. Investors can rest easy knowing that Shopify’s top contender in this space is WooCommerce, an open-source solution that requires a degree of technical ability most entrepreneurs lack.

Competition from WooCommerce and its smaller peers is rolling off Shopify like water off a duck’s back. First-quarter gross merchandise volume (GMV) has grown 57% annually over the past two years. It’s evident that Shopify hasn’t had to lower pricing to compete because revenue grew at an even faster rate of 60% annually over the same period.

Person looking at stock charts on a laptop and smartphone. A child is playing in the background.

Image source: Getty Images.

2. A compelling value

Shopify has grown by leaps and bounds since its inception, and as a result, it’s historically traded at extremely high prices that just assumed the company would operate in a low-interest rate environment forever. Now that the Federal Reserve has signaled multiple rate hikes in 2022, nobody knows how severely to discount the future cash flows of Shopify, or any other business in a high-growth phase.

Interest rate uncertainty has pushed Shopify’s price down to just 9.5 times trailing sales. This is the lowest price investors have been able to buy Shopify at since 2016.

Pandemic-related stay-at-home orders led to a rapid shift in spending from services to goods that can be purchased online. Now that purchasing habits are more or less back to normal, a nervous stock market is behaving as if Shopify is destined to grow at around 10% annually without ever returning to the much-faster pace investors have grown accustomed to.

3. Stock split coming up

Back when Shopify was trading above $1,000 per share, management thought it would be nice if the stock was accessible to more retail investors. To make it so, the company announced a 10-for-1 stock split in April that will most likely take place on June 28, 2022.

In theory, splitting Shopify’s stock won’t change the value of anyone’s portfolio. One share will become 10 shares, but the price of each share will drop by a factor of 10.

In practice, market caps tend to rise significantly in the days leading up to and immediately following the date a stock splits. Shopify is a stock best held for the long term, but seeing a quick gain in your brokerage account could put an extra spring in your step.

4. Confident founders 

Shopify is a software business that isn’t resting on its laurels. The company is spending heaps to grow its physical footprint and cement its leading position. To this end, the company is acquiring shipping company Deliverr, for $2.1 billion.

Deliverr uses predictive analytics to optimize the operations of rented warehouses. Shopify intends to fold Deliverr into its own collection of warehouses. This will let Shopify merchants offer their customers the same ultra-fast shipping speeds they’ve come to expect from Amazon.

In 2021, Shopify acquired a significant stake in Global-E Online (GLBE -5.81%). This is a cross-border e-commerce specialist that will allow Shopify merchants in the U.S. to reach international markets they didn’t have a way of entering previously. Integration with Global-E will also make it easy for merchants around the world to sell their products in North America.

Shopify’s plan to make its fulfillment network second to none is going to pinch profits this year and most likely in 2023 as well. This hasn’t stopped its founders from investing their own money into the company they’re running. In May, CEO Tobi Lütke bought $10 million worth of Shopify shares, and several members of its executive team made significant purchases, too.

Like the rest of us, Shopify insiders have bills to pay and luxuries to acquire. They may have millions of reasons to sell shares of their company, but there’s only one reason to buy it. The folks who know this company best are convinced its stock will provide market-beating gains. Given the company’s performance to date, they’re probably right.



Source link Shopify Analytics

Post Author: Adam Jacob

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